01-30-2017, 11:09 PM
(01-30-2017, 03:19 PM)X_4AD_84 Wrote: Bad day in the markets today.
Markets don't like it when governments interfere with movements of people and goods.
My take, from my comment on 538; perhaps I'll get some interesting responses here:
Business success and stock prices do not move in perfect unison.
Some of Trump's economic policies are neutral to mildly bad for business - less immigration, potentially tariffs - but they are by far outweighed by the positives - tax reform, regulatory relief, possible trade agreement renegotiation to favor American businesses. So on balance, Trump policies are beneficial to business.
However, stock prices aren't just dependent on business success. They are also dependent on long term interest rates. The lower the interest rates, the higher the price to earnings - P/E - ratio, and thus the higher the stock prices. In recent years, inflation rates and long term interest rates have been kept extremely - perhaps artificially - low, resulting in inflated stock prices.
Trump's economic policies are on balance inflationary. Tax reform is deflationary, but tariffs, immigration control, and "infrastructure" spending are all inflationary. This is likely to push long term interest rates up, since long term interest rates tend to reflect inflation rates.
This is actually fine for the economy - our problem is more that inflation is too low than that it is too high, and higher inflation also leverages the benefit the US gets from high overseas dollar reserves - but it will decrease P/E ratios and stock prices. So we should expect stock prices to fall over the next decade or so, assuming Trump's economic plan isn't greatly modified.
I would argue this is actually a good thing. Today's economy is tilted too far towards those who control the capital, which include stockholders, and too far against the workers who earn wages. Righting the ship involves restoring a larger share of the economy to the wage earners, which necessarily means reducing the share devoted to the capital owners.
And for capital owners who object, just remember the alternative is let the imbalance continue and get worse, which means that at some point, the workers will react even more violently than by doing something like electing Trump, perhaps taking "burn it down" literally. If there's a literal anticapitalist revolution, stockholders will lose everything. Even if there's just enough backlash to elect a Sanders and hand control of Congress to socialists - because it will be socialists, not neoliberal Democrats - capital owners stand to lose a lot more than a bit of stock value.